After a week of rest due to illness, we are back with a new episode of Bitcoin MagazineThe Fed Watch podcast. In this article, Christian Kerolis and I sit down to talk about the ambiguous competitive world of central banks. Topics include the reappointment of Federal Reserve Chair Jerome Powell and, funny enough, what that means for the European Central Bank (ECB). An epic pivot in loyalties is happening now, as the Federal Reserve takes on its role as the central bank of the United States and distances itself from responsibility for Europe.
We started the episode with our first winner. I wanted people to answer the question: If central bank balance sheets matter, why are ECB and Bank of Japan (BOJ) inflation lower and balance sheets higher relative to GDP than the US? Mitch (@wittyusername30) best answer. our end. To paraphrase: Central banks don’t print money, they replace idle reserves with useful collateral. This has deflationary pressure on the economy.
Reappointment of Powell as President
Can Powell Re-nominated by President Biden as Fed Chair, after defeating his primary rival, Lyle Brainard. Several reasons have been cited, such as the fact that Powell’s path through Senate confirmation is much easier while Lyle might meet with a split vote along partisan lines in the Senate by 50/50. Also, officials said Powell was being “rewarded” in another term for successfully tending the economy during the COVID-19 recession of 2020.
I see this appointment as having a deeper meaning:
First, we’ve talked at length on this show about Powell’s refusal to keep up with the hype around a central bank digital currency (CBDC). Other central banks have been lobbying hard for central bank digital currencies, and Powell is constantly spraying cold water on the idea. This symbolizes a break with global interests in favor of American banking interests.
Second, Powell faced increasingly progressive opposition from Congress. Maniacs, such as Senator Elizabeth Warren, attacked him for not being pessimistic enough and not convinced of the Fed’s role in climate policy. His reappointment is a rejection of some sort against progressives and their toxic environmental, social and cultural initiatives.
Third, Lyle is the most globalization-friendly option. Powell symbolizes a break with the globalists toward a more American-centric policy.
European Central Bank regulation and panic
Next, we moved straight to the ECB news. This week I released a new regulation framework For electronic payments:
“The Eurosystem will be used to oversee companies that enable or support the use of payment cards, credit and debit transfers, electronic money transfers and digital payment tokens, including e-wallets. The PISA framework will also cover services related to crypto assets, such as merchant acceptance of crypto assets within a card payment scheme. and the option to send, receive, or pay with crypto assets via an electronic wallet.”
This stands in stark contrast to the United States, where the White House and the Treasury Department tried to rule out bitcoin in a recent infrastructure bill, which, ironically, has been thwarted by altcoins who want to protect name-only (DINO) decentralized scams.
The European Central Bank fears that the euro will lose market share in the coming years, reducing its “monetary sovereignty”. It wants to prevent competition from stablecoins in dollars and bitcoins, while at the same time supplying the market with digital euros — a digital euro that the market hasn’t seen fit to present itself, by the way.
We have delved deeper into the many headwinds facing Europe at the moment. Of course, it has inflation, but it also has the Fed’s management of its back; supply chain disruptions and shrinking trade volumes; The number of COVID-19 cases is rising, despite authoritarian authorities imposing shootings under duress, and new lockdowns and restrictions in many countries; And an escalating energy crisis puts Europe in Russia’s grip, as Russia builds up its forces on Ukraine’s borders. It’s a perfect storm that causes capital to flee Europe in search of dollars and hopefully bitcoin.
Bitcoin and a strong dollar
This week, the dollar decisively breached new highs, indicating increasing pressures in the global financial system. The collateral shortage we’ve been talking about over the past six to twelve months seems to be quickly turning into a dollar shortage.
Bitcoin is a neutral asset ready and willing to welcome capital fleeing from Europe and China. It also provides a place for capital to flee, and this will not lead to debt imbalance elsewhere in the economy.
Investors know that a stronger dollar is hurting the global economy. Most debt is denominated in dollars, and as the dollar rises it becomes more difficult to service that debt. The world does better when the dollar weakens, but is dragged into recession with the strength of the dollar. Bitcoin offers an alternative haven for that value, which may be able to cut a cycle back and forth with the dollar.
For this thesis to be true, we must see the dollar and bitcoin rise together, which is exactly what we have seen this year; Very close link. This is not a cause and effect, they both benefit from the same market conditions.
As you can see in the chart below, the dollar rose first in June 2021, followed a month later by bitcoin. Then again in September 2021, followed by bitcoin a month later. Recently, the dollar started to rise in the early days of November, if Bitcoin is to follow the correlation, it should start rising again at the beginning of December.
European debt crisis 2.0?
the first European debt crisis (EDC1) immediately followed the Great Financial Crisis, culminating in 2010 to 2012. It is likely that the current situation could culminate in the European Debt Crisis 2.0.
During the height of EDC1, bitcoin first consolidated itself and rose in the bitcoin bubble in 2011 to reach $30. Could we see a repeat 30-fold rise this time? Maybe not much, but there’s a lot going up in the cards next year.